Filing for bankruptcy can be stressful…to say the least, but understanding the step-by-step process can help prepare you for what’s ahead. Whether you’re considering Chapter 7 or Chapter 13 bankruptcy, the process follows a similar structure.
Here’s a quick overview of the key stages you’ll go through when filing for bankruptcy:
1. Consult with a Bankruptcy Attorney
The first step in the bankruptcy process is to consult with a qualified bankruptcy attorney. During this initial meeting, the attorney will review your financial situation, including your debts, income, assets, and expenses. Based on this information, they will help you determine whether bankruptcy is the right option and, if so, which type of bankruptcy—Chapter 7 or Chapter 13—is most appropriate for your situation.
- Tip: Be prepared to provide documentation of your finances, such as recent pay stubs, tax returns, and a list of your debts and assets.
2. Complete Credit Counseling
Before you can officially file for bankruptcy, you are required to complete a credit counseling course from a government-approved agency. This course typically lasts about 90 minutes and can be done online or over the phone. The goal is to explore alternatives to bankruptcy and ensure you’re fully informed about your options. Upon completion, you’ll receive a certificate, which you must file with the bankruptcy court.
- Note: This credit counseling requirement is mandatory for both Chapter 7 and Chapter 13 filers.
3. Filing the Bankruptcy Petition
Once you’ve completed credit counseling and decided to proceed, your attorney will file a bankruptcy petition on your behalf. This petition includes several forms that provide detailed information about your financial situation, including:
- A list of your assets and liabilities
- Income and expenses
- Recent financial transactions
- A statement of your current financial affairs
In Chapter 13 cases, the petition will also include a proposed repayment plan outlining how you intend to pay back creditors over 3 to 5 years.
When your petition is filed, an automatic stay goes into effect. This means that creditors must stop all collection activities, including wage garnishments, lawsuits, and harassing phone calls.
4. Meeting of Creditors (341 Meeting)
After filing your bankruptcy petition, you will be required to attend a “Meeting of Creditors,” also known as the 341 Meeting. This meeting typically takes place 20 to 40 days after filing and is conducted by the bankruptcy trustee assigned to your case.
At the 341 Meeting, you will answer questions under oath about your financial situation and the information provided in your bankruptcy petition. Creditors may attend this meeting, though they often do not. Your attorney will attend with you, and the meeting usually lasts only 10 to 15 minutes.
- Tip: Be honest and forthcoming during the meeting. Your trustee is there to ensure the accuracy of your filings and verify that everything is in order.
5. Chapter-Specific Processes
Depending on whether you’ve filed for Chapter 7 or Chapter 13, the next steps will vary:
- Chapter 7:
After the 341 Meeting, the trustee will review your assets to determine if any non-exempt property can be sold to repay creditors. In most cases, however, filers have few or no non-exempt assets, and the case is categorized as a “no-asset” bankruptcy, meaning there’s nothing for the trustee to sell. Within a few months, you will receive a discharge of your eligible debts, meaning they are legally wiped out. - Chapter 13:
In Chapter 13, the process is more involved because you will need to follow a repayment plan. The court will review and approve the plan, and once approved, you’ll begin making payments to a bankruptcy trustee, who will distribute the funds to your creditors. This repayment plan typically lasts 3 to 5 years. If you successfully complete the plan, any remaining eligible debts will be discharged.
6. Post-Filing Requirements: Debtor Education
Before you can receive a discharge of your debts, you must complete a debtor education course. This is different from the pre-filing credit counseling and focuses on financial management, budgeting, and how to make better financial decisions moving forward. The course is designed to help you avoid financial pitfalls in the future.
Upon completion, you will need to file a certificate of completion with the court.
7. Discharge of Debts
The ultimate goal of filing for bankruptcy is to receive a discharge, which means that your legal obligation to repay certain debts is eliminated. Once the discharge is granted, creditors are permanently barred from taking any collection actions against you.
- For Chapter 7 filers: This discharge typically happens 4 to 6 months after your bankruptcy petition is filed.
- For Chapter 13 filers: You will receive a discharge after successfully completing your repayment plan, which usually takes 3 to 5 years.
Not all debts can be discharged in bankruptcy. Debts like student loans, child support, certain taxes, and fines generally cannot be eliminated through bankruptcy.
Conclusion
Filing for bankruptcy involves a series of important steps, but with the right guidance and preparation, you can navigate the process smoothly. Consulting with an experienced bankruptcy attorney is essential to make sure you’re on the right track and that your case is handled properly. Understanding each step—from the initial consultation and filing your petition to the final discharge of your debts—will help reduce anxiety and empower you to take control of your financial future.